DHARANI SUGARS AND CHEMICALS LTD. v. UNION OF INDIA & ORS.

INDIA & ORS. [R.F. NARIMAN, J.]

traced back to the Law of Libel Amendment Act 1888. He A observed that at that time the phenomenon of press conferences was unknown. This was an invitation to the House to say that press conferences could not have been within the original intent of the legislature. There is a clear answer to this appeal to Victorian history. Unless they reveal a contrary intention all statutes are to B be interpreted as “always speaking statutes”. This principle was stated and explained in R v Ireland, R v Burstow [1997] 4 All ER 225 at 233, [1998] AC 147 at 158. There are at least two strands covered by this principle. The first is that courts must interpret and apply a statute to the world as it exists today. That is the basis of the decision in R v Ireland where ‘bodily harm’ in a Victorian C statute was held to cover psychiatric injury. Equally important is the second strand, namely that the statute must be interpreted in the light of the legal system as it exists today. In the classic work of Sir Rupert Cross, Statutory Interpretation (3rd edn, 1995) pp 51-52, the position is explained as follows: D “The somewhat quaint statement that a statute is “always speaking” appears to have originated in Lord Thring’s exhortations to drafters concerning the use of the word “shall”: “An Act of Parliament should be deemed to be always speaking and therefore the present or past tense should be adopted, and “shall” should be used as an imperative only, not as a future”. E But the proposition that an Act is always speaking is often taken to mean that a statutory provision has to be considered first and foremost as a norm of the current legal system, whence it takes its force, rather than just as a product of an historically defined Parliamentary assembly. It has a legal existence independently of the historical contingencies of its promulgation, and accordingly should be interpreted in the light of its place within the system of legal norms currently in force. Such an approach takes account of the viewpoint of the ordinary legal interpreter of today, who expects to apply ordinary current meanings to legal texts, rather than to embark on research into linguistic, cultural and political history, unless he is specifically put on notice that the latter approach is required.” (My emphasis.)

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A In other words, it is generally permissible and indeed necessary to take into account the place of the statutory provision in controversy in the broad context of the basic principles of the legal system as it has evolved. If this proposition is right, as I believe it to be, it follows that on ordinary principles of construction the question before the House must be considered in the light of the law of B freedom of expression as it exists today. The appeal to the original meaning of the words of the statute must be rejected.” (at pp. 926-927) (emphasis supplied)

23Copy pinpoint23. This exposition of the law is to be read along with the judg- ment in Birmingham City Council v. Oakley, [2001] 1 All ER 385 [HL], where Lord Hoffmann cautioned thus: “Mr. Supperstone argued that section 79(1)(a) must be construed in the light of modern conditions. When it speaks of a ‘state ... D prejudicial to health’, this does not mean a state which would have been so regarded in 1846. It requires the application of mod- ern knowledge and standards of hygiene. The words must be construed as ‘always speaking’ in the sense used by Lord Steyn in R v Ireland, R v Burstow [1997] 4 All ER 225 at 233, [1998] E AC 147 at 158-159. I quite agree that when a statute employs a concept which may change in content with advancing knowledge, technology or social standards, it should be interpreted as it would be currently understood. The content may change but the con- cept remains the same. The meaning of the statutory language remains unaltered. So the concept of a vehicle has the same mean- F ing today as it did in 1800, even though it includes methods of conveyance which would not have been imagined by a legislator of those days. The same is true of social standards. The concept of cruelty is the same today as it was when the Bill of Rights 1688 (1 Will & Mary, sess 2, c 2) forbade the infliction of ‘cruel and G unusual punishments’ (section 10). But changes in social standards mean that punishments which would not have been re- garded as cruel in 1688 will be so regarded today. This doctrine does not however mean that one can construe the language of an old statute to mean something conceptually H

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different from what the contemporary evidence shows that A Parliament must have intended. So, for example, in the recent case of Goodes v East Sussex County Council [2000] 3 All ER 603, [2000] 1 WLR 1356, the House of Lords decided that the statutory duty of highway authorities to ‘maintain’ the highway did not include the removal of ice and snow. Although the word B ‘maintain’ was capable of including the removal of ice and snow and such removal might be expected by modern road users, the contemporary evidence showed that the concept of maintenance in the legislation was confined to keeping the fabric of the road in repair. To require the removal of ice and snow would not be to apply that concept in accordance with modern standards (such as requiring a metalled surface instead of gravel) but would be using the word ‘maintain’ to express a broader concept than Parlia- ment intended. Such a change would not be in accordance with the meaning of the statute. Likewise it seems to me in this case that an extension of the concept of ‘premises in such a state as to be prejudicial to health’ to the absence of facilities, as such, is an illegitimate extension of the statutory meaning. My Lords, it seems to me that the temptation to make such an extension should be resisted for much the same reasons as your Lordships in Southwark London Borough Council v Mills [1999] 4 All ER 449, [1999] 3 WLR 939 refused to extend the common law of nuisance and quiet enjoyment so as to require landlords to install soundproofing. Parliament has dealt expressly with the obligation to provide toilet facilities in different sections and usually in different Acts. Until 1991 it did not require a basin to be installed in the WC even in new constructions. It has never done so in respect of existing buildings. For the courts to give section 79(1)(a) an extended “modern” meaning which required suitable alterations to be made to existing houses would impose a substantial financial burden upon public and private owners and occupiers. I am entirely in favour of giving the 1990 Act a sensible modern interpretation. But I do not think that it is either sensible or in accordance with modern notions of democracy to hold that when Parliament re-enacted language going back to the 19th century, it authorised the courts to impose upon local

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A authorities and others a huge burden of capital expenditure to which the statutory language had never been held to apply. In my opinion the decision as to whether or not to take such a step should be made by the elected representatives of the people and not by the courts.” B (at pp. 396-397)

24Copy pinpoint24. A cursory reading of Section 35A makes it clear that there is nothing in the aforesaid provision which would indicate that the power of the RBI to give directions, when it comes to the Insolvency Code, cannot be so given. The width of the language used in the provision C which only uses general words such as ‘public interest’ and ‘banking policy’ etc. makes it clear that if otherwise available, we cannot interdict the use of Section 35A as a source of power for the impugned RBI circular on the ground that the Insolvency Code, 2016 could not be said to have been in the contemplation of Parliament in 1956, when Section 35A was enacted. Dr. Singhvi’s contention must, therefore, fail. D

25Copy pinpoint25. Dr. Singhvi then relied upon the judgment in Indian Banks’ Association (supra). In this case, the power of the RBI under Section 35A of the Banking Regulation Act was held not to extend to granting approval to banks under a separate and distinct enactment, namely, the Interest Tax Act, 1974. In this context, this Court held: E “37. The submission of the learned counsel for the appellants to the effect that they had been permitted to enhance the rate of interest by the Reserve Bank of India, is equally misconceived. The Reserve Bank of India apparently proceeded on the basis that the mode of calculation of rate of interest vis-à-vis the tax F under the Act, as contended by Appellant 1, was correct. The Reserve Bank of India was not an authority for construction of a statute. Its functions are confined only to the provisions of the Reserve Bank of India Act and the Banking Regulation Act and not any other statute.

G 38. Section 35-A of the Banking Regulation Act empowers the Reserve Bank of India to issue directions in relation to matters specified under Section 35-A and not for any other purpose. The contention of the appellants to the effect that rate of interest had been enhanced by them pursuant to or in furtherance of the directions issued by the Reserve Bank of India must be held to be H

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self-contradictory inasmuch as according to them the Reserve A Bank of India fixes only the minimum rate of interest leaving a determination thereof in the case of each individual borrower upon the bank concerned. If the matter relating to increase in the rate of the interest was within the power of the appellants, we fail to understand as to why the Reserve Bank of India was approached at all. The same being not permissible under the Act, any approval given by the Reserve Bank of India for the satisfaction of the members of the first appellant herein was futile.” xxx xxx xxx “40. In any view of the matter, the purported directions contained in the letter dated 2-9-1991 of the Reserve Bank of India are not even in the nature of executive instruction under the said Act. It was not binding on the banks, far less on the borrowers. In any event, by reason of a misplaced and misapplied construction of statute, a third party cannot suffer. D

41. Furthermore, having regard to the provisions contained in Article 265 of the Constitution read with Article 366(28) thereof, the purported demand from the borrower for a higher amount of tax and consequently a higher amount of interest by way of rounding-up was wholly illegal and without jurisdiction. We also fail to understand as to why in this modern electronic age, this E difficulty would be encountered while calculating the exact amount of tax.

42. We, therefore, are of the opinion that the purported approval granted by the Reserve Bank of India was wholly without jurisdiction and ultra vires the provisions of the said Act.” F Based on this judgment, Dr. Singhvi contended that the RBI cannot possibly give directions as to how the banks must exercise their discretionary power before filing applications under Section 7 of the Insolvency Code. Shri Dwivedi, however, distinguished this judgment by stating that this was a tax case and it must be remembered that the G entries in the Seventh Schedule qua taxation are separate from general entries. Even otherwise, according to Shri Dwivedi, the RBI directions are at a stage anterior to the application of the provisions of the Insolvency Code, as a result of which, this judgment would have no application. H

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26Copy pinpoint26. We are of the view that Shri Dwivedi is right. If a specific provision of the Banking Regulation Act makes it clear that the RBI has a specific power to direct banks to move under the Insolvency Code against debtors in certain specified circumstances, it cannot be said that they would be acting outside the four corners of the statutes which gov- ern them, namely, the RBI Act and the Banking Regulation Act. On this score, therefore, Dr. Singhvi’s contention must fail.

27Copy pinpoint27. Shri Dwivedi has cited certain judgments stating that discre- tionary powers given to the RBI under the Banking Regulation Act gen- erally, and under Section 35A, in particular, are broad and expansive, and have been expansively expounded upon by this Court. He relied, in particular, upon Central Bank of India v. Ravindra, (2002) 1 SCC

367. In particular, he relied upon paragraph 51 and paragraph 55 (5) which state: “51. The Banking Regulation Act, 1949 empowers the Reserve Bank, on it being satisfied that it is necessary or expedient in the public interest or in the interest of depositors or banking policy so to do, to determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular and when the policy has been so determined it has a binding effect. In particular, the Reserve Bank of India may give directions as to the rate of interest and other terms and conditions on which advances or other financial accommodation may be made. Such directions are also binding on every banking company. Section 35-A also empowers the Reserve Bank of India in the public interest or in the interest of banking policy or in the interests of depositors (and so on) to issue directions generally or in particular which shall be binding. With effect from 15-2-1984 Section 21-A has been inserted in the Act which takes away power of the court to reopen a transaction between a banking company and its debtor on the ground that the rate of interest charged is excessive. The provision has been given an overriding effect over the Usury Loans G Act, 1918 and any other provincial law in force relating to indebtedness. xxx xxx xxx

55. During the course of hearing it was brought to our notice that in view of several usury laws and debt relief laws in force in H

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several States private moneylending has almost come to an end and needy borrowers by and large depend on banking institutions for financial facilities. Several unhealthy practices having slowly penetrated into prevalence were pointed out. Banking is an organised institution and most of the banks press into service long- running documents wherein the borrowers fill in the blanks, at times without caring to read what has been provided therein, and bind themselves by the stipulations articulated by the best of legal brains. Borrowers other than those belonging to the corporate sector, find themselves having unwittingly fallen into a trap and rendered themselves liable and obliged to pay interest the quantum whereof may at the end prove to be ruinous. At times the interest charged and capitalised is manifold than the amount actually advanced. Rule of damdupat does not apply. Penal interest, service charges and other overheads are debited in the account of the borrower and capitalised of which debits the borrower may not even be aware. If the practice of charging interest on quarterly rests is upheld and given a judicial recognition, unscrupulous banks may resort to charging interest even on monthly rests and capitalising the same. Statements of accounts supplied by banks to borrowers many a times do not contain particulars or details of debit entries and when written in hand are worse than medical prescriptions putting to test the eyes and wits of the borrowers. E Instances of unscrupulous, unfair and unhealthy dealings can be multiplied though they cannot be generalised. Suffice it to observe that such issues shall have to be left open to be adjudicated upon in appropriate cases as and when actually arising for decision and we cannot venture into laying down law on such issues as do not F arise for determination before us. However, we propose to place on record a few incidental observations, without which, we feel, our answer will not be complete and that we do as under: xxx xxx xxx (5) The power conferred by Sections 21 and 35-A of the G Banking Regulation Act, 1949 is coupled with duty to act. The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general and H

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A preventing banking affairs from deterioration and prejudice as also to secure the proper management of any banking company generally. The Reserve Bank of India is one of the watchdogs of finance and economy of the nation. It is, and it ought to be, aware of all relevant factors, including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time which, inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who fall within the net of such directives. For such transaction which are not squarely governed by such circulars, the RBI directives may be treated as standards for the purpose of deciding whether the interest charged is excessive, usurious or opposed to public policy.” D Similarly, in Sudhir Shantilal Mehta v. Central Bureau of In- vestigation, (2009) 8 SCC 1, he relied upon paragraphs 51 and 52 which state as follows: “51. In terms of Section 35-A of the 1949 Act, Reserve Bank of India is empowered to issue directions to the banks in public interest; E or in the interest of banking policy; or to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interest of the banking company; or to secure the proper management of any banking company generally.

F 52. Reserve Bank of India in terms of Section 21 of the 1949 Act is empowered to control advances by banking companies and is- sue necessary directions in this behalf. Reserve Bank of India, therefore, has the requisite power to issue direction to banks in relation to discounting and rediscounting of bills of exchange and those directions issued by Reserve Bank of India have statutory G force and, thus, can be termed as law in force. (See also Corpo- ration Bank v. D.S. Gowda [(1994) 5 SCC 213] and Central Bank of India v. Ravindra [(2002) 1 SCC 367].) All public sec- tor banks are bound thereby.”

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Also, in ICICI Bank Ltd. v. APS Star Industries Ltd., (2010) A 10 SCC 1, this Court, when it came to whether derivatives could be a business which banks could do, stated with respect to Sections 21 and 35A of the RBI Act as follows: “35. Section 21 deals with the power of RBI to control advances by banking companies. Section 21 empowers RBI to frame policies B in relation to advances to be followed by banking companies. It further says that once such policy is made all banking companies shall be bound to follow them. Section 21(1) is once again a general provision empowering RBI to determine policy in relation to advances whereas Section 21(2) empowers RBI to give directions to banking companies as to items mentioned there i.e. in Section C 21(2). Under Section 21(3) every banking company is bound to comply with directions given by RBI at the peril of penalty being levied for non-compliance. Section 35-A says that where RBI is satisfied that in the interest of banking policy it is necessary to issue directions to banking companies it may do so from time to time and the banking companies shall be bound to comply with such directions. Thus, in exercise of the powers conferred by Sections 21 and 35-A of the said Act, RBI can issue directions having statutory force of law. Section 36 deals with further powers and functions of RBI. Under Section 39 it is RBI which shall be the Official Liquidator in any proceedings concerning winding up of a banking company.” xxx xxx xxx “38. The BR Act, 1949 basically seeks to regulate banking business. In the cases in hand we are not concerned with the definition of banking but with what constitutes “banking business”. Thus, the said BR Act, 1949 is an open-ended Act. It empowers RBI (regulator and policy framer in matter of advances and capital adequacy norms) to develop a healthy secondary market, by allowing banks inter se to deal in NPAs in order to clean the balance sheets of the banks which guideline/policy falls under G Section 6(1)(a) read with Section 6(1)(n). Therefore, it cannot be said that assignment of debts/NPAs is not an activity permissible under the BR Act, 1949. Thus, accepting deposits and lending by

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A itself is not enough to constitute the “business of banking”. The dependence of commerce on banking is so great that in modern money economy the cessation even for a day of the banking activities would completely paralyse the economic life of the nation. Thus, the BR Act, 1949 mandates a statutory comprehensive and formal structure of banking regulation and supervision in India.” B He also referred to the Statement of Objects and Reasons of the Amendment Act, 1956, which brought in Section 35A in order to tighten up control over banking companies so as to enable the RBI to give di- rections to banking companies in relation to matters of policy or admin- istration affecting the public interest. C

28Copy pinpoint28. There is no doubt that Sections 21 and 35A do confer very wide powers on the RBI to give directions when it comes to the matters specified therein. However, this does not answer the precise question before us. This question can only be answered by referring to Sections 35AA and 35AB. D

29Copy pinpoint29. Section 35AA makes it clear that the Central Government may, by order, authorise the RBI to issue directions to any banking com- pany or banking companies when it comes to initiating the insolvency resolution process under the provisions of the Insolvency Code. The first thing to be noted is that without such authorisation, the RBI would have no such power. There are many sections in the Banking Regula- tion Act which enumerate the powers of the Central Government vis-à- vis the powers of the RBI. Thus, Section 36ACA(1) provides as fol- lows: “36ACA. Supersession of Board of Directors in certain cases.—(1) Where the Reserve Bank is satisfied, in consultation with the Central Government, that in the public interest or for preventing the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company, it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such banking company for a period not exceeding six months as may be specified in the order:

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Provided that the period of supersession of the Board of Directors A may be extended from time to time, so, however, that the total period shall not exceed twelve months. xxx xxx xxx” This Section makes it clear that the RBI’s satisfaction in super- seding the board of directors of banking companies can only be exer- B cised in consultation with the Central Government, and not otherwise. Similarly, under Sections 36AE and 36AF, the Central Government alone has the power to acquire undertakings of banking companies in certain cases, on receipt of a report from the RBI. Section 36AE(1) reads as follows: C “36AE. Power of Central Government to acquire undertakings of banking companies in certain cases.—(1) If, upon receipt of a report from the Reserve Bank, the Central Government is satisfied that a banking company— (a) has, on more than one occasion, failed to comply with the D directions given to it in writing under Section 21 or Section 35- A, in so far as such directions relate to banking policy, or (b) is being managed in a manner detrimental to the interests of its depositors,— E and that— (i) in the interests of the depositors of such banking company, or (ii) in the interest of banking policy, or (iii) for the better provision of credit generally or of credit to any particular section of the community or in any particular area; F

it is necessary to acquire the undertaking of such banking company, the Central Government may, after such consultation with the Reserve Bank as it thinks fit, by notified order, acquire the undertaking of such company (hereinafter referred to as the acquired bank) with effect from such date as may be specified in G this behalf by the Central Government (hereinafter referred to as the appointed day):

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A Provided that no undertaking of any banking company shall be so acquired unless such banking company has been given a reasonable opportunity of showing cause against the proposed action. Explanation.—In this Part,— B (a) “notified order” means an order published in the Official Gazette; (b) “undertaking,” in relation to a banking company incorporated outside India, means the undertaking of the company in India.

C xxx xxx xxx” Likewise, under Section 36AF, the Central Government may, af- ter consulting the RBI, make a scheme for carrying out the purpose of acquisition of such undertakings of banking companies. Section 36AF(1) reads as follows: D “36AF. Power of the Central Government to make scheme.—(1) The Central Government may, after consultation with the Reserve Bank, make a scheme for carrying out the pur- poses of this Part in relation to any acquired bank. xxx xxx xxx” E Under Section 45Y, the Central Government may after consulting the RBI make rules for preservation of records as follows: “45Y. Power of Central Government to make rules for the preservation of records.—The Central Government may, after consultation with the Reserve Bank and by notification in the F Official Gazette, make rules specifying the periods for which— (a) a banking company shall preserve its books, accounts and other documents; and (b) a banking company shall preserve and keep with itself G different instruments paid by it.” Under Section 52(1), the Central Government may, after consul- tation with the RBI, make rules to give effect to the provisions of the Act as follows: “52. Power of Central Government to make rules.—(1) The H Central Government may, after consultation with the Reserve

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Bank, make rules to provide for all matters for which provision is A necessary or expedient for the purpose of giving effect to the provisions of this Act and all such rules shall be published in the Official Gazette. xxx xxx xxx” Importantly, the Central Government may, on the recommenda- B tion of the RBI, declare that all or any of the provisions of the Banking Regulation Act shall not apply to any banking company, either generally or for a prescribed period. Section 53(1) of the Act reads as follows: “53. Power to exempt in certain cases.—(1) The Central Government may, on the recommendation of the Reserve Bank, C declare, by notification in the Official Gazette, that any or all of the provisions of this Act shall not apply to any banking company or institution or to any class of banking companies either generally or for such period as may be specified. xxx xxx xxx” D The power to remove difficulties is also vested in the Central Government under Section 55A of the Act, which reads as follows: “55A. Power to remove difficulties.—If any difficulty arises in giving effect to the provisions of this Act, the Central E Government may, by order, as occasion requires, do anything (not inconsistent with the provisions of this Act) which appears to it to be necessary for the purpose of removing the difficulty: Provided that no such power shall be exercised after the expiry of a period of three years from the commencement of Section 20 F of the Banking Laws (Amendment) Act, 1968.” A conspectus of all these provisions shows that the Banking Regu- lation Act specifies that the Central Government is either to exercise powers along with the RBI or by itself. The role assigned, therefore, by Section 35AA, when it comes to initiating the insolvency resolution pro- cess under the Insolvency Code, is thus, important. Without authorisation G of the Central Government, obviously, no such directions can be issued.

30Copy pinpoint30. The corollary of this is that prior to the enactment of Section 35AA, it may have been possible to say that when it comes to the RBI

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A issuing directions to a banking company to initiate insolvency resolution process under the Insolvency Code, it could have issued such directions under Sections 21 and 35A. But after Section 35AA, it may do so only within the four corners of Section 35AA.

31Copy pinpoint31. The matter can be looked at from a slightly different angle. If B a statute confers power to do a particular act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any manner other than that which has been prescribed. This is the well-known rule in Taylor v. Taylor, [1875] 1 Ch. D. 426, which has been repeatedly followed by this Court. Thus, in State of U.P. v. Singhara Singh, (1964) 4 SCR 485, this Court held: C “The rule adopted in Taylor v. Taylor [(1875) 1 Ch D 426, 431] is well recognised and is founded on sound principle. Its result is that if a statute has conferred a power to do an act and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. The principle behind the rule is that if this were not so, the statutory provision might as well not have been enacted. A Magistrate, therefore, cannot in the course of investigation record a confession except in the manner laid down in Section 164. The power to record the confession had obviously been given so that the confession might be proved by the record of it made in the manner laid down. If proof of the confession by other means was permissible, the whole provision of Section 164 including the safeguards contained in it for the protection of accused persons would be rendered nugatory. The section, therefore, by conferring on Magistrates the power to record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him.” (at pp. 490-491)

G Following this principle, therefore, it is clear that the RBI can only direct banking institutions to move under the Insolvency Code if two conditions precedent are specified, namely, (i) that there is a Central Government authorisation to do so; and (ii) that it should be in respect of

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specific defaults. The Section, therefore, by necessary implication, prohibits this power from being exercised in any manner other than the manner set out in Section 35AA.

32Copy pinpoint32. Shri Dwivedi then argued relying upon the Finance Minister’s speech that Section 35AA was really enacted by way of abundant caution inasmuch as there was a doubt as to whether such power could be exercised generally or otherwise. He relied, in particular, on the following statement in the speech of the Finance Minister, Shri Arun Jaitley, while moving the Bill which introduced Sections 35AA and 35AB into the Banking Regulation Act. The Finance Minister stated: “This issue was discussed at length. There were two views that the general power may not include this power. One view was exactly what you are saying. The other view was this. It is a very short amendment. Therefore, to obviate any controversy, the RBI will direct the consortium of banks to go and move an IBC insolvency petition.” D

33Copy pinpoint33. A Finance Minister’s speech, introducing certain provisions, can certainly shed some light on such provisions, particularly in cases of ambiguity. In the present case, what is missed is the fact that two conditions precedent have been introduced in Section 35AA, without which, power cannot be exercised by the RBI. This itself shows that it is not possible to say that Section 35AA has been introduced ex abundanti E cautela. Further, it is well settled that Parliament does not legislate where no legislation is called for. Thus, in Utkal Contractors & Joinery (P) Ltd. v. State of Orissa, (1987) 3 SCC 279, this Court held: “9. In considering the rival submissions of the learned Counsel and in defining and construing the area and the content of the Act F and its provisions, it is necessary to make certain general observations regarding the interpretation of statutes. A statute is best understood if we know the reason for it. The reason for a statute is the safest guide to its interpretation. The words of a statute take their colour from the reason for it. How do we discover G the reason for a statute? There are external and internal aids. The external aids are Statement of Objects and Reasons when the Bill is presented to Parliament, the reports of committees which

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A preceded the Bill and the reports of Parliamentary Committees. Occasional excursions into the debates of Parliament are permitted. Internal aids are the preamble, the scheme and the provisions of the Act. Having discovered the reason for the statute and so having set the sail to the wind, the interpreter may proceed ahead. No provision in the statute and no word of the statute may be construed in isolation. Every provision and every word must be looked at generally before any provision or word is attempted to be construed. The setting and the pattern are important. It is again important to remember that Parliament does not waste its breath unnecessarily. Just as Parliament is not expected to use unnecessary expressions, Parliament is also not expected to express itself unnecessarily. Even as Parliament does not use any word without meaning something, Parliament does not legislate where no legislation is called for. Parliament cannot be assumed to legislate for the sake of legislation; nor can it be assumed to make pointless legislation. Parliament does not indulge in legislation merely to state what it is unnecessary to state or to do what is already validly done. Parliament may not be assumed to legislate unnecessarily. Again, while the words of an enactment are important, the context is no less important. For instance: “...the fact that general words are used in a statute is not in itself a conclusive reason why every case falling literally within them should be governed by that statute, and the context of an Act may well indicate that wide or general words should be given a restrictive meaning.” [Halsbury 4th Edn., Vol. 44 p. 874]” F This contention of Shri Dwivedi must, therefore, fail.

34Copy pinpoint34. Yet another contention of Shri Dwivedi is that concurrent powers have been given to the RBI on a combined reading of Sections 21, 35A, 35AA, and 35AB. Interestingly, when concurrent powers are given to the same or to two different authorities, the Banking Regulation G Act expressly says so. Thus, Section 35(1) of the Act is an example of concurrent power given to the RBI as well as to the Central Government. Section 35(1) of the Act reads as follows: “35. Inspection.—(1) Notwithstanding anything to the contrary contained in Section 235 of the Companies Act, 1956, the Reserve H

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Bank at any time may, and on being directed so to do by the A Central Government shall, cause an inspection to be made by one or more of its officers of any banking company and its books and accounts; and the Reserve Bank shall supply to the banking company a copy of its report on such inspection. xxx xxx xxx” B When it comes to the inspection of books of accounts, the RBI may, either by itself or by being directed to do so by the Central Government, cause an inspection to be made of any banking company’s books and accounts in the manner specified in the Section. This is to be contrasted with Section 35AA, which makes it clear that de hors the C authorisation of the Central Government, the RBI has no power to issue directions on its own, unlike Section 35. This argument also must, therefore, fail.

35Copy pinpoint35. Shri Dwivedi then argued that Section 35AB uses the words “without prejudice” to indicate that the power granted under the said D Section was to be read as additional to other powers granted by Sections 35A and 35AA. This Court, in Bharat Sanchar Nigam Ltd. v. Telecom Regulatory Authority of India and Ors., (2014) 3 SCC 222, at paragraphs 90 to 97, has indicated that the words “without prejudice” appearing in a Section make it clear that powers that are enumerated are only illustrative of a general power and do not restrict such general power. Indeed, in Union of India and Anr. v. Pfizer Ltd. and Ors., (2018) 2 SCC 39, this Court held: “14. Having heard the learned counsel for the parties, it is clear that Section 26-A has been introduced by an amendment in 1982. A bare reading of this provision would show, firstly, that it is without prejudice to any other provision contained in this Chapter (meaning thereby Chapter IV). This expression only means that apart from the Central Government’s other powers contained in Chapter IV, Section 26-A is an additional power which must be governed by its own terms. Under Section 26-A, the Central Government must be “satisfied” that any drug or cosmetic is likely to involve (i) any risk to human beings or families; or (ii) that any drug does not have the therapeutic value claimed or purported to be claimed for it; or (iii) contains ingredients in such quantity for which there is no therapeutic justification. Obviously, the Central Government H

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A has to apply its mind to any or all of these three factors which has to be based upon its “satisfaction” as to the existence of any or all of these factors. The power exercised under Section 26-A must further be exercised only if it is found necessary or expedient to do so in public interest. When the power is so exercised, it may regulate, restrict or prohibit manufacture, sale or distribution of B any drug or cosmetic.” Thus, the power to issue directions given by Section 35AB is in addition to the power that is given under Section 35A.

36Copy pinpoint36. It is significant that the power to issue directions given by C Section 35AB is without prejudice only to the provisions of Section 35A, i.e., it has to be read in conjunction with Section 35A. What is of even greater significance is that Section 35AB is not without prejudice to the provisions contained in Section 35AA. This being so, it is clear that the power under Section 35AB, read with Section 35A, is to be exercised separately from the power conferred by Section 35AA. D

37Copy pinpoint37. All the learned counsel appearing on both sides referred to external aids to construe the statute at hand. In Eera (through Dr. Manjula Krippendorf) v. State (NCT of Delhi) and Anr., (2017) 15 SCC 133, Nariman, J. referred to what may be called the theory of creative interpretation. Instances of creative interpretation are when E the Court looks at both the literal language as well as the purpose or object of the statute in order to better determine what the words used by the draftsman of legislation mean [see paragraph 122]. He then concluded: “127. It is thus clear on a reading of English, US, Australian and our own Supreme Court judgments that the “Lakshman Rekha” F has in fact been extended to move away from the strictly literal rule of interpretation back to the rule of the old English case of Heydon [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637] , where the Court must have recourse to the purpose, object, text and context of a particular provision before arriving at a judicial result. G In fact, the wheel has turned full circle. It started out by the rule as stated in 1584 in Heydon case [Heydon case, (1584) 3 Co Rep 7a : 76 ER 637] , which was then waylaid by the literal interpretation rule laid down by the Privy Council and the House of Lords in the mid-1800s, and has come back to restate the rule somewhat in terms of what was most felicitously put over 400 H

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years ago in Heydon case [Heydon case, (1584) 3 Co Rep 7a : A 76 ER 637].” This judgment has since been followed by this Court in ArcelorMittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 [at paragraph 29]; Asian Resurfacing of Road Agency (P) Ltd. v. Central Bureau of Investigation, (2018) 16 SCC 299 [at paragraph B 51.5]; Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd., (2018) 2 SCC 674 [at paragraphs 27 and 30]; State (NCT of Delhi) v. Brijesh Singh, (2017) 10 SCC 779 [at paragraph 13].

38Copy pinpoint38. The Press Note dated 05.05.2017, set out supra, explained the new Sections 35AA and 35AB as the grant of two distinct and sepa- C rate powers. Section 35AA has been inserted “to resolve specific stressed assets by initiating insolvency resolution process where required”. On the other hand, Section 35AB has been enacted so that the “RBI has also been empowered to issue other directions for resolution……” It is significant that Section 35AA is enacted exactly as it is in the Ordi- nance. So is Section 35AB, except for a minor addition in sub-section D (1), which adds the words “any banking company or”. Indeed, even the Statement of Objects and Reasons introducing the same Sections by way of an Amendment Act makes it clear that the powers conferred for resolution of stressed assets, either by invoking the Insolvency Code or by other means, are separate and independent powers, as set out in E paragraphs 3(a) and 3(b) of the said Statement of Objects and Reasons. Therefore, the scheme of Sections 35A, 35AA, and 35AB is as follows: (a) When it comes to issuing directions to initiate the insolvency resolution process under the Insolvency Code, Section 35AA is the only source of power. F (b) When it comes to issuing directions in respect of stressed assets, which directions are directions other than resolving this problem under the Insolvency Code, such power falls within Section 35A read with Section 35AB. This also becomes clear from the fact that Section 35AB(2) enables G the RBI to specify one or more authorities or committees to advise any banking company on resolution of stressed assets. This advice is obviously de hors the Insolvency Code, as once an application is made under the Insolvency Code, such advice would be wholly redundant, as the Insolvency H

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A Code provisions would then take over and have to be followed.

39Copy pinpoint39. When one section of a statute grants general powers, as opposed to another section of the same statute which grants specific powers, the general provisions cannot be utilised where a specific provision has been enacted with a specific purpose in mind. Thus, in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P., (1961) 3 SCR 185, this Court held: “9. There will be complete harmony however if we hold instead that clause 5(a) will apply in all other cases of proposed dismissal or discharge except where an inquiry is pending within the meaning of clause 23. We reach the same result by applying another well-known rule of construction that general provisions yield to special provisions. The learned Attorney-General seemed to suggest that while this rule of construction is applicable to resolve the conflict between the general provision in one Act and the special provision in another Act, the rule cannot apply in resolving a conflict between general and special provisions in the same legislative instrument. This suggestion does not find support in either principle or authority. The rule that general provisions should yield to specific provisions is not an arbitrary principle made by lawyers and Judges but springs from the common understanding of men and women that when the same person gives two directions one covering a large number of matters in general and another to only some of them his intention is that these latter directions should prevail as regards these while as regards all the rest the earlier direction should have effect. In F Pretty v. Solly (quoted in Craies on Statute Law at p.m. 206, 6th Edn.) Romilly, M.R., mentioned the rule thus: “The rule is, that whenever there is a particular enactment and a general enactment in the same statute and the latter, taken in its most comprehensive sense, would overrule the former, the particular G enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply”. The rule has been applied as between different provisions of the same statute in numerous cases some of which only need be mentioned: De Winton v. Brecon [28 LJ Ch 598], Churchill v. Crease [5 Bing 177], United States v. Chase [135 H US 255] and Carroll v. Greenwich Ins. Co. [199 US 401].”

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This judgment has been followed in Commercial Tax Officer, A Rajasthan v. Binani Cements Ltd. and Anr., (2014) 8 SCC 319 [at paragraph 39].

40Copy pinpoint40. Stressed assets can be resolved either through the Insolvency Code or otherwise. When resolution through the Code is to be effected, the specific power granted by Section 35AA can alone be availed by the B RBI. When resolution de hors the Code is to be effected, the general powers under Sections 35A and 35AB are to be used. Any other interpretation would make Section 35AA otiose. In fact, Shri Dwivedi’s argument that the RBI can issue directions to a banking company in respect of initiating insolvency resolution process under the Insolvency Code under Sections 21, 35A, and 35AB of the Banking Regulation Act, C would obviate the necessity of a Central Government authorisation to do so. Absent the Central Government authorisation under Section 35AA, it is clear that the RBI would have no such power.

41Copy pinpoint41. Having grounded the power to issue directions to banking companies so far as the Insolvency Code is concerned, in Section 35AA, D what is important to note is that the Section enables the Central Govern- ment to authorise the RBI to issue such directions in respect of “a de- fault”. Default, in the explanation to Section 35AA, has the same mean- ing assigned to it under Section 3(12) of the Insolvency Code. Section 3(12) of the Insolvency Code reads as under: E “3. Definitions.—In this Code, unless the context otherwise requires,— xxx xxx xxx (12) “default” means non-payment of debt when whole or any F part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be; xxx xxx xxx” “Debt” has been defined under Section 3(11) of the Insolvency G Code as follows: “3. Definitions.—In this Code, unless the context otherwise requires,— xxx xxx xxx H

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A (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; xxx xxx xxx” Also, “corporate debtor” has been defined under Section 3(8) of B the Insolvency Code as follows: “3. Definitions.—In this Code, unless the context otherwise requires,— xxx xxx xxx C (8) “corporate debtor” means a corporate person who owes a debt to any person; xxx xxx xxx” A reading of these definitions would make it clear that default would mean non- payment of a debt when it has become due and payable and is not paid by the corporate debtor. Therefore, what is important to note is that it is a particular default of a particular debtor that is the subject matter of Section 35AA. It must also be observed that the expression “issue directions to banking companies generally or to any banking company in particular” occurring in Section 35A is conspicuous by its absence in Section 35AA. This is another good reason as to why Section 35AA refers only to specific cases of default and not to the issuance of directions to banking companies generally, as has been done by the impugned circular.

42Copy pinpoint42. This is clear also from the Press Note dated 05.05.2017, which introduced the Ordinance which specifically referred to resolution of “specific” stressed assets which will empower the RBI to intervene in “specific” cases of resolution of NPAs. The Statement of Objects and Reasons for introducing Section 35AA also emphasises that directions are in respect of “a default”. Thus, it is clear that directions that can be issued under Section 35AA can only be in respect of specific defaults by specific debtors. This is also the understanding of the Central Government when it issued the notification dated 05.05.2017, which authorised the RBI to issue such directions only in respect of “a default” under the Code. Thus, any directions which are in respect of debtors generally, would be ultra vires Section 35AA. H

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43Copy pinpoint43. However, Shri Dwivedi argued that “specific cases” would include specification by category or class. All the definitions given by him in his written argument, however, belie this. Thus, in the Oxford Dictionary, the word “specific” is defined as follows: “Specific / adjective 1. clearly defined. 2. relating to particular subject; peculiar. 3. exact; giving full details. 4. archaic (of medicine etc.) for a particular disease. noun 1. archaic specific medicine.

2. specific aspect.” Black’s Law Dictionary also defines the word “specific” as follows: “specific, adj. 1. Of, relating to, or designating a particular or defined thing; explicit <specific duties>. 2. Of, relating to, or involving a particular named thing <specific item>. 3. Conformable to special requirements <specific performance>. – specificity, n. – specifically, adv.” Shri Dwivedi referred to Maru Ram and Ors. v. Union of In- D dia and Ors., (1981) 1 SCC 107, to argue that specification by category would be something well-known to law. He relied upon paragraph 33 of the aforesaid judgment which reads as follows: “33. The anatomy of this savings section is simple, yet subtle. Broadly speaking, there are three components to be separated. E Firstly, the Procedure Code generally governs matters covered by it. Secondly, if a special or local law exists covering the same area, this latter law will be saved and will prevail. The short-sentencing measures and remission Schemes promulgated by the various States are special and local laws and must override. F Now comes the third component which may be clinching. If there is a specific provision to the contrary, then that will override the special or local law. Is Section 433-A a specific law contra? If so, that will be the last word and will hold even against the special or local law.” G A reading of paragraph 33 would show that the specific provision to the contrary, referred to therein, would refer only to a particular Section, as opposed to a category or Chapter which contains various Sections. This judgment, therefore, directly militates against the submission of Shri Dwivedi in this behalf. H

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44Copy pinpoint44. Shri Dwivedi then relied upon Section 13 of the General Clauses Act, 1897 [“General Clauses Act”] to state that the singular would include the plural. There is no doubt whatsoever that this would be so unless the context otherwise requires, as is provided by Section 13 of the General Clauses Act itself. In the present case, the context of Section 35AA makes it clear, as has been correctly argued by Shri Tushar B Mehta, learned Solicitor General, that the power to be exercised under the authorisation of the Central Government requires “due deliberation and care” to refer to specific defaults. This argument also does not take Shri Dwivedi very much further.

45Copy pinpoint45. The impugned circular states as one of its sources, the power C contained in Section 45L of the RBI Act insofar as non-banking financial institutions are concerned. Non-banking financial institutions are referred to in Section 45-I(c) as follows: “45-I. Definitions.—In this Chapter, unless the context otherwise requires,— D xxx xxx xxx (c) ‘‘financial institution’’ means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:– E (i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own; (ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature; F (iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire-Purchase Act, 1972; (iv) the carrying on of any class of insurance business; G (v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto;

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(vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lumpsum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or kind, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,– (a) agricultural operations; or (aa) industrial activity; or C

Explanation.–For the purposes of this clause, ‘‘industrial activity’’ means any activity specified in sub-clauses (i) to (xviii) of clause (c) of section 2 of the Industrial Development Bank of India Act, 1964; D (b) the purchase or sale of any goods (other than securities) or the providing of any services; or (c) the purchase, construction or sale of immovable property, so however, that no portion of the income of the institution is derived from the financing of purchases, constructions or sales of immovable property by other persons; xxx xxx xxx” Section 45L reads as follows: “45L. Power of Bank to call for information from financial institutions and to give directions.—(1) If the Bank is satisfied for the purpose of enabling it to regulate the credit system of the country to its advantage it is necessary so to do, it may— (a) require financial institutions either generally or any group of financial institutions or financial institution in particular, to furnish to the Bank in such form, at such intervals and within such time, such statements, information or particulars relating to the business of such financial institutions or institution, as may be specified by the Bank by general or special order;

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A (b) give to such institutions either generally or to any such institution in particular, directions relating to the conduct of business by them or by it as financial institutions or institution. (2) Without prejudice to the generality of the power vested in the Bank under clause (a) of sub-section (1), the statements, information or particulars to be furnished by a financial institution may relate to all or any of the following matters, namely, the paid- up capital, reserves or other liabilities, the investments whether in Government securities or otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest, on which it is provided. (3) In issuing directions to any financial institution under clause (b) of sub-section (1), the Bank shall have due regard to the conditions in which, and the objects for which, the institution has been established, its statutory responsibilities, if any, and the effect the business of such financial institution is likely to have on trends in the money and capital markets.” There is nothing to show that the provisions of Section 45L(3) have been satisfied in issuing the impugned circular. The impugned circular nowhere says that the RBI has had due regard to the conditions in which and the objects for which such institutions have been established, their statutory responsibilities, and the effect the business of such financial institutions is likely to have on trends in the money and capital markets. Further, it is clear that the impugned circular applies to banking and non- banking institutions alike, as banking and non-banking institutions are often in a joint lenders’ forum which jointly lend sums of money to debtors. Such non-banking financial institutions are, therefore, inseparable from banking institutions insofar as the application of the impugned circular is concerned. It is very difficult to segregate the non-banking financial institutions from banks so as to make the circular applicable to them even if it is ultra vires insofar as banks are concerned. For these reasons also, the impugned circular will have to be declared as ultra vires as a whole, and be declared to be of no effect in law. Consequently, all actions taken under the said circular, including actions by which the Insolvency Code has been triggered must fall along with the said circular. As a result, all cases in which debtors have been proceeded against by financial H

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creditors under Section 7 of the Insolvency Code, only because of the operation of the impugned circular will be proceedings which, being faulted at the very inception, are declared to be non-est.

46Copy pinpoint46. In view of the declaration by this Court that the impugned circular is ultra vires Section 35AA of the Banking Regulation Act, it is unnecessary to go into any of the other contentions that have been raised in the transferred cases and petitions. The transferred cases and petitions are disposed of accordingly.

Ankit Gyan Tranferred Cases and Petitions disposed of. C